Homebuilder Confidence Highest in a Decade

What that Means for Investors, Homebuyers, and Sellers

A primary housing indicator appears to have fully recovered from the housing crisis and has reached its highest point in ten years. The National Association of Home Builders (NAHB)/Wells Fargo US Housing Market index (HMI) reached a value of 62 in September, representing a 5% increase over the previous year.

The HMI is derived from a monthly survey among homebuilders to gauge three aspects of single-family home sales: buyer foot traffic, current sales conditions, and sales expectations over the next six months. Survey responses are combined and seasonally adjusted to create a composite single index number combining current conditions and future expectations. Readings above 50 indicate more optimism than pessimism in the housing market.

The HMI has increased threefold since the dark housing days of 2008-2011 when almost all readings were below 20, but has struggled to maintain positive momentum. However, the HMI index has been holding steady or slowly growing for several months now, which suggests the housing market may be gaining sufficient momentum to spur economic growth in the fourth quarter. Housing has been notoriously slow to recover, and this report comes as good news to economists and investors. Home purchases provide an economic boost through a cascade effect as new homebuyers purchase other goods, such as furniture, for their new home.

According to NAHB Chief Economist David Crowe, approximately 1.1 million total single-family housing starts are expected this year. Crowe added, "Barring any unexpected jolts, we expect housing to keep moving forward at a steady, modest rate through the end of the year."

Does this mean good news for homebuyers or home sellers? Theoretically, rising confidence and rising sales mean rising prices until supply catches up with demand. Interest rates are still hanging in at historically low levels, but eventually the Federal Reserve will begin to raise interest rates and mortgage rates will follow suit. In addition, the foot traffic component of the HMI showed the strongest increase, indicating more people are at least shopping for new homes.

All of this information suggests that if you are in the market for a new home, the current environment may be the best combination for you. Buy now, before demand and higher rates/prices make it more difficult to do so.

Conversely, as a seller, you may be able to get a better deal later — assuming that your potential buyers are not priced out of the market by the rising value of your home. Rental rates are rising, tilting the balance more toward homeownership as a viable economic option for those in the market for new housing. It is always a gamble to wait and seek higher prices, especially if you have a prospective buyer — but only you can make the best decision for your circumstances.

In reality, your local housing market (or the market in which you want to buy) will likely dictate your decision. The housing crisis created an oversupply of homes compared to qualified buyers and an imbalance in the type of available homes to homebuyers needs (especially with affordable housing). In some areas, that imbalance still exists with plenty of upper-end housing available but few lower-end or starter homes on the market. Thus, each end of the market is skewed — upper-end housing sells below market value and starter homes become more expensive.

For your individual situation, the improved builder confidence may be good news or bad news — but for the economy and the country as a whole, it is surely considered good news. We could all use improved economic growth.

I'm glad to hear that it looks like things are improving. I'm also glad that my fiancé and I will be looking to buy a house sooner rather than later, meaning we might get a better deal now! I'll be happy to put more money into the economy buying household goods!